Sierra Metals Inc.
Q3 2017 Earnings Call Transcript

Published: 13 Nov 2017

[Operator:]

Good morning. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sierra Metals' Third Quarter 2017 Results Conference Call. All lines have been placed on mute to prevent any background noise and after the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you very much. Christina Papadopoulos, Manager of Investor Relations, you may go ahead.

[Christina Papadopoulos:]

Thank you, Operator and good morning everyone. Welcome to Sierra’s Q3 2017 results call. On today's call, we are joined by Igor Gonzales, President and CEO; Ed Guimaraes, CFO and Gordon Babcock, COO. Today's call will be followed by a question-and-answer period. Today's presentation is also available to download both through this website and from the Company's website at sierrametals.com. Last Thursday’s press release, the financial statements and the Management Discussion and Analysis, are also posted on Company's website. Before we start, I would like to remind everyone about our disclaimer, that certain statements made today by the executive management team may contain certain forward-looking information. Anything not historical is considered forward-looking. For more information, please refer to our detailed cautionary note in last Thursday's press release and to the disclaimer on Slide 2of today's presentation. Please note that all dollar amounts mentioned on this call are U.S. dollars unless otherwise noted. With that, I will now turn the call over to Igor Gonzales, President and CEO.

[Igor Gonzales:]

Thank you. I will have Mike McAllister to do the introduction, please. Okay, good morning everyone. I would like to begin with an overview of the 2017 third quarter results for Sierra Metals. I will also discuss the operational and exploration highlights for the quarter. Overall, we’re very encouraged by the continued progress and achievements in the financial, operational and exploration results at Sierra in this third quarter. We are optimistic that 2017 will continue to be a strong a year of operational performance at Yauricocha and a growth year for our Mexican operations as the company progresses on the operational improvement program well underway with improved production recoveries and cash flow. Following my summary highlights, Gordon Babcock will take us through the operational and exploration highlights and then, Ed Guimaraes will take us through the third quarter financial highlights and then we will open the call for questions. On Slide 4, the third quarter 2017 represents the fifth consecutive quarter of solid financial results. During this quarter, the company continues to maintain the improvements in revenue and adjusted EBITDA realized during the previous two quarters. The company also achieved significant improvements – given last years with a 25% increase to revenues from $50.9 million and a 16% increase in adjusted EBITDA to $18.8 million while maintaining a strong liquidity with $28.6 million in cash and cash equivalents. In the quarter, the company processed 505,000 tons which represented a 6% increase from Q3 2016. The company saw a 29% increase in silver equivalent production of 3.8 million ounces, and a 17% increase in copper equivalent production of 21.9 million pounds versus Q3 2016 when using realized metal prices. The decline in production in Mexico was mainly due to the implementation of a new plant with improved operational performance and produce profitable silver equivalents at Cusi and improve efficiencies at our Bolivar copper mine. Lower production in Mexico which was partially offset by an increase of 44% in silver equivalent production and 13% increase in throughput in Yauricocha during Q3 2017 versus Q3 2016. While Yauricocha experienced higher throughput, higher copper and zinc grades and higher recoveries of all metals except gold, a decrease in metal production was due to lower throughput head grades and recoveries of all metals except gold at Bolivar. The lower throughput lead and zinc head grades and lower silver recovery per tonne. On Slide 6, similar to the successful program at Yauricocha in Peru, which began at the start of Q2 2015, the Company has engaged in an operational turnaround program in Mexico to modernize operations, improve production and address the head grades and recoveries. Improvements at the Mexican operations include changes in the corporate team and local teams which is now strengthened in Mexico to better support and improve operations; improved metallurgical recovery levels to above 80% at both mills in Mexico from the low 60% range at Cusi and low 70% range at Bolivar; 13 new pieces of equipment commissioned at Bolivar Mine to maximize ore delivery at mine’s productivity; drift development underway on four sub-levels in the Santa de Rosa de Lima structure at the Cusi Mine. This development is incrementing the metal campaign with higher grade ore. This trend is expected to continue until full mill capacity from Santa Rosa de Lima is reached, targeted – it’s targeting Q2 2018. The results from the program are expected to become more apparent in Q4 2017 and Q1 2018. If you turn on Slide number 7, Sierra Metals continues to have placed an expanding mineral reserves and extending mineral mine lives as well as made significant progress on its new discoveries and explorations. This morning, the company press release that it had filed a NI 43-101 Technical Report updating the Mineral Reserves and Resources at the Yauricocha Mine on November 10, 2017 which was prepared by SRK Consulting U.S. Highlights from the report include, mineral resources maybe increased 134% compared to prior reserve estimates. Total Proven and Probable Contained Metal has significantly increased by 86% silver, 237% in copper, 58% in lead, 96% in zinc, and 97% in gold as compared to the prior reserve estimate. Mineral resources increased 88% from previous mineral resources estimates. Total Measured and Indicated Contained Metal has significantly increased by 72% in silver, 128% in copper, 74% in zinc, 64% in lead and 61% in gold. Inferred mineral resources increased 77% from previous reserves estimates. Total Inferred Contained Metal has significantly increased by 55% silver, 59% copper, 105% zinc, 42% in lead and 83% in gold. Updated mineral resource estimates are also expected for both Cusi and Bolivar during this quarter. Gordon will comment on the significant and potential procurements on operations of these mineral reserve estimates. Continuing with Slide number 8, Brownfield Exploration success in the third quarter at all mines. Gordon again will provide the service, sales initiatives and certain updates other highlights of the Brownfield programs and drill programs. At the end of the quarter, the company discovered the New Escondida Area containing high grade zinc and lead at the Cachi-Cachi Zone. This shows the potential for new discoveries at Cachi-Cachi and demonstrates the mineral intake improvements that are continued to the north and still open and that along with sprout. Additionally, the company has also reported positive drilling results from the Cuye zone located within the Central Mine at the Yauricocha Mine. To-date, four more holes have been executed from the 870 level and have intercepted polymetallic sulphide mineralization containing high-grade zinc and copper zones over significant widths. These results demonstrate the potential for high-grade mineralization at Cuye and indicate the continued existence of extensive mineralization at depth. It appears that Cuye and Catas orebodies unite and become one orebody at depth. The company also completed Titan 24 Geophysical Survey over the Yauricocha orebody and will enable the location of the hidden sulphide targets for further targeted drilling campaign. Moving to Bolivar, the company released positive results, drill results s from infill drilling at the high grade Bolivar West Zone at the Bolivar Mine. Results included the discovery of several wide, high-grade copper structures at the Bolivar Mine. The Company also announced the initial results of the positive drilling program designed to test the anomalies of the Titan 24 Geophysical Survey recently completed at the Bolivar Property. Last anomaly is, at Cusi the company provided the market with the positive results of an expanded infill drilling program completed at the Santa Rosa De Lima Zone. This recently discovered zone contains structures that are more than two times the width of averaging 3.8 metres, and nearly twice the silver head grades now averaging 372 silver equivalent gram per tonne. Than what has been previously mined closer to surface. Additional steps a drilling test also expanded results from 700 metres with total length of 1.7 kilometers to-date. The company will continue with its impressive Brownfield exploration program and the initial growth programs at all three mines. And we will continue to provide further extensions to existing zones aiming at resource growth in all three mines. Additionally, we have reinforced our technical teams to meet the upcoming challenges of drilling new Brownfield planning into production in the near future. With that, I will now turn the call over to Gordon Babcock, our Chief Operating Officer for the operations and explorations update.

[Gordon Babcock:]

Thanks very much, Igor. Turning now to the operational highlights on Slide 9. Q3, As Igor stated, Sierra posted a grand total of 505,000 tonnes, which represented a 6% increase in comparison to Q3 2016. The company produced 3.8 million silver equivalent ounces or 29% increase over 1.8 million copper equivalent pounds represents a 17% increase in copper in the third quarter compared to the third quarter of 2016. This was partially offset – offset partially as a result of result of differences in realized metal prices during both periods. Normalizing the metal pricing used in the equivalent metal calculations, there was a decrease in metal production which was due to lower production in Mexico which was partially offset by the second highest throughput a record in Peru. Compared to the second quarter at Yauricocha where higher throughput was driven by higher potential, higher copper and zinc head grades and higher recoveries of all metals and gold. The company continues to see through it smelt production as a result of the inflation of the higher capacity at both the zones and positive explorations in infill drilling results achieved during the last quarter. Bolivar saw a decrease in throughput which is primarily attributable to the equipment availability at Bolivar as the company was waiting final deliveries of equipment purchased immediately. At Cusi, the company saw a significant reduction in improvement but low retention recoveries for all metals, zinc heads as the company continues the progress and develop the high grade border with Santa Rosa De Lima Zone. The company continues to benefit from the operational improvements programs in Yauricocha beginning with the singular type program in Bolivar in Mexico and our objective is to improving productivity, metal production and metal recoveries. The results of the program in Mexico will become more apparent in Q4 2017 and in the first quarter of 2018. At Cusi, the company is focused on completing access development and production from the Santa Rosa de Lima zone which has much wider structures and higher silver grades in the previously mined closer to surface. The Company has reached the agreement structure and is currently developing drifts to mine this area. The company is currently campaigning development ore and growth agreements are which to take improved head grades to the mill at Cusi. And the company expects gradual increased tonnage from Santa Rosa de Lima zone at the silver mill. It has the maximum capacity for 160 tons a day using the ore content of Santa Rosa de Lima zone. It’s expected that the main supply award terms and it will come from the Santa Rosa de Lima zone. Both the teams now are at Yauricocha. The company the higher quarterly plans to mine to get some 208,178 tonnes of assets which represents a 13% increase compared to Q3 2016. Lower production in silver production in Q3 2017 was 10 million ounces represent the 44% increase over Q3 2016. Sierra signed increases 3% production in copper – and 40% in Yauricocha in Q3 2017 versus Q3 2016 with increases in production of silver 31%, lead 43% and gold 43%. General comments with regards to our recent publications on our technical report, one of the key factors to bear in mind here is that we are focusing on production increases in the Yauricocha operation. We have a great guild of metal available in the future that are new challenges and the production investments in the tunnel and the shaft facilitate evolvement of the new identified reserves that we have in front of us. So our plans are to maximize in 2018. At Bolivar, the company had plans to put up 223838 tonnes assets which represents a 11% - compared to Q3 2016, lower throughput and recoveries of all metals on the lower head base encountered resulted in 25% copper equivalent production when compared to Q3 2016. Copper production decreased by 3% at Bolivar in the third quarter 2017 versus third quarter of 2016 along with some 20% lower silver production offset by an 8% increase in gold production. The company focused at Bolivar in 2017 again to improve production volume in terms of new equipment which includes, jumbo, LSPs and trucks. These – there are thirty new pieces of equipment and we are waiting on one more LSP one for the fourteen scoop and that equipment is arriving soon. The additional equipment will supplement the existing equipment moving material from available production of silver in the mine. We do expect to see the impact of this machine starting and its importance here. At Cusi, the company produced or processed rather a total of 15,224 tonnes which represents 73% increase from Q3 2017 compared to Q3 2016. Lower head grades which produce raw metals that head grades and recoveries – through increase in the number of equivalent production. Silver production decreased 68%, gold production 77%, lead production decreased 75% and zinc production compared to Q3 2016. Despite the decreases in metal production, it is important to note that Cusi represents 4% of various metals with current total. Cusi’s contribution to the company’s overall production is expected to increase depending the development represents the – at the recent news that covers Santa Rosa de Lima zone. The company has ramped down to the new zone that’s currently developed and campaigning development work at the mill with improved grades of zone which is expected that the current mill will be running at full capacity compared with more reserves from Santa Rosa de Lima zone. Turning to Slide 11. Exploration remains a key part at all three of the mines. During Q3 2017, the company had drilled over 106 holes s totaling 13,918 meters at Yauricocha. Exploration drilling accounted for 31 holes or 7768 metres in various zones including Cuye, Yauricocha South Fault, Antacaca, Karlita, Esperanza, Elissa to test continuity of mineralization and explore new mineralized zones and ore bodies at depth Also, as noted before, the Titan 24 Geophysical Survey was completed in Q3, 20 lines totaling 54 kilometers survey around the Yauricocha mine, but no means to – whole area is much bore at play. Definition drilling comprised of 53 holes 5,431 meters at Antacaca, Butz, Esperanza, Esperanza North and Mascota to define and determine continuity of ore bodies. On August 24, 2017, the Company announced discovery of the Escondida zone, situated within the Cachi-Cachi Mine, located some 1,000 meters north of the Central Mine. Escondida is one of several limestone replacement mineralized zones demonstrating the existence of new mineralized areas within the Cachi-Cachi Mine, and it’s located within the northern extension of the Esperanza Orebody. This demonstrates the mineralization from Esperanza continues to the north, and is still open to depth and along strike. It’s also important that it could also confirm the existence of high-grade mineralized areas and unlocks the possibility of discovering additional orebodies along the Yauricocha fault between the Esperanza and Cachi-Cachi ore bodies. As I mentioned, one of the key drivers of opportunity was the application expected to – to be completed in the first quarter, this we are unable to locate and get sulphide targets. I think Titan 24 survey had never been implemented at Yauricocha and management is permitting that program will bring results and further highlighting our targets. On October 2, 2017, the Company announced positive drilling results from the Cuye zone located within the Central Mine area of the Yauricocha Mine. To-date, four holes have been executed from the 870 level which have intercepted polymetallic sulphide mineralization containing high grade zinc and copper zones over significant widths. These results demonstrate the potential for high grade mineralization within the reported area, and more importantly, indicate the continued existence of extensive mineralization at depth. It also appears that the Cuye and Catas orebodies unite and become one orebody at depth. It is important to note that Cuye was one of the main cash flow generators 10 years ago and it appears to be at depth with similar widths and grades. All drilling that have taken place is exceptional and that was published in 2017 that is included in the upcoming – in the last mineral reserve press release September 28, 2017 and the mineral reserve update press on October 26, 2017. The mineral reserve and resource estimates has been published and that was filed in today’s reported period. If opportunities continue to expand our high value near tonnage in the near term, longer term and the opportunities are numerous that will have no means to exhaust. During Q3 2017, 14,082 meters were drilled in the following areas

[Ed Guimaraes:]

Thanks, Gord. Turning now to slide 16, I am pleased to report the company had another solid quarter of financial results benefiting from an increased metal prices, as well as strong production at Yauricocha. The company had revenues of $50.9 million in the third quarter of 2017, which represented a 25% increase compared to the third quarter of 2016. Realized metal prices in the third quarter were also higher for copper 30%, zinc 33%, and lead 27%. In addition to the higher metal prices realized, the increase in revenues are primarily attributable to 13% increase in throughput, the increase in copper and zinc head rates and higher recoveries for all metals except gold at Yauricocha. This was partially offset by the 11% decrease in throughput, lower head grades and lower recoveries for all metals, except gold at Bolivar; and a 73% decrease in throughput at Cusi along with lower head grades in all metals, except zinc, and gold recoveries at Cusi. Adjusted EBITDA of $18.8 million for Q3 2017 increased compared to $16.3 million in Q3 2016. The increase in adjusted EBITDA was primarily due to the $10.1 million increase in revenues at Yauricocha. Yauricocha’s Q3 2017 cash cost for silver equivalent payable ounce was $6.55 versus $7.02 in Q3 2016, and all-in sustaining cash cost per silver equivalent payable ounce was $10.35 versus $12.64 in Q3 2016. The increase in realized metal prices used to calculate silver equivalent payable ounces in Q3 2017 versus Q3 2016 was the reason for the decrease in the all-in sustaining cost per silver equivalent ounce for these periods. Using consistent realized metal prices results in a 14% increase in the all-in sustaining cost per silver equivalent ounce relative to Q3 2016 is a result of increased CapEx, including a substantial amount of infill drilling, infrastructure improvements including ramp and shaft development, ventilation improvements, equipment, as well as plant improvements that were completed. The increase was also a result of OpEx including infill drilling and drift development that will be utilized within one year. Bolivar's Q3 2017 cash cost per copper equivalent payable pound was $1.69 versus $0.89 in Q3 2016, and the all-in sustaining cash cost per copper equivalent payable pound was $3.32 versus $1.81 in Q3 2016. The increase in the all-in sustaining cost per copper equivalent payable pound during Q3 2017 was due to a decrease in copper equivalent payable pounds as a result of 11% lower throughput, as well as an increase in sustaining capital expenditures related to the various equipment purchases made by the Company during the quarter in an effort to improve the equipment availability and increase tonnage. Cusi's Q3 2017 cash cost per silver equivalent payable ounce was $21.95 versus $9.86 in Q3 2016 and the all-in sustaining cash cost per silver equivalent payable ounce was $51.93 versus $19.59 for Q3 2016 All-in sustaining cash cost per silver equivalent payable ounce increased due to the decline in throughput which resulted in fewer silver equivalent payable ounces as the Company continued its refocused efforts on completing access, development and production from the Santa Rosa de Lima zone which contains wider structures and higher silver grades. Cash flow generated from operations before movements in working capital of $21.8 million for Q3 2017 increased, compared to $16.9 million in Q3 2016. The increase in operating cash flow is mainly the result of higher revenues generated and higher gross margins realized. I would now like to review our cash flows, which provide the clearest perspective on our financial performance. I have summarized the changes in cash during Q3 2017 on slide 17. During the third quarter, our operating cash flows were $15.6 million. We spent $18.7 million on capital expenditures in Mexico and Peru and paid $23.5 million in principle repayments and interest on our credit facilities in Peru and Mexico. We also had proceeds from the issuance of loans and credit facilities of $26 million. These items decreased our cash balance from $31.1 million at June 30, 2017 to $28.6 million as of September 30, 2017. Turning to the balance sheet and liquidity on slide 18. We have ended the third quarter of 2017 in a strong financial position with $28.6 million in cash. We have total debt position of $69 million and a net debt position of $40 million. The Company remains confident that 2017 EBITDA will be much greater than the current debt outstanding at the end of the year. The Company has principal payment obligations on its loans and credit facilities of approximately $5 million remaining to be paid in 2017, $24 million to be paid in 2018, $8 million to be paid in 2019 and $29 million to be paid in 2020. The company expects to be able to fund the short-term capital and debt commitments through the continued generation of operating cash flow. I would like to take a moment now to highlight some noteworthy events that have taken place during the third quarter. The company has moved to using realized metal prices instead of budget metal prices starting by copper silver in ounces and copper equivalent pounds. This change was made which is a continued upswing in each metal prices which resulted in the generation of cost performance throughputs that were not representative of actual performance. The Company has revised all previous quarters silver equivalent ounces and copper equivalent pound calculations, which in turn have affected all of the cash cost and all-in sustaining cost metrics. The Company has used realized metal prices for the nine months ended 2017 and nine months ended 2016 to calculate the silver equivalent ounces and copper equivalent pounds, cash cost, and all-in sustaining cost metrics which differ from the metal prices used to calculate the quarterly metrics for the Company's MD&A in respect of the three months ended March 31, 2017 and the six months ended June 30, 2017 previously disclosed by the Company. The Company will continue to update these metrics each quarter based on the realized metal prices for each quarter going forward. With regards to Sierra’s stock listing, on July 6, 2017, the Company announced that its common shares were approved for listing on the NYSE American and they began trading under the symbol SMTS on July 11, 2017. The common shares have continued to trade on the Toronto Stock Exchange and the Lima Stock Exchange. The listing of our common shares on the NYSE American represented an important milestone for Sierra Metals and intercepted our progress to enhance shareholder value by increasing stock liquidity and exposure to institutional, and retail investors. Another event was the spinout of our Northern Properties in Peru. On August 8, 2017, the Company announced the completion of the previously announced distribution of Cautivo Mining Inc's common shares, issuance of Rights pursuant to Cautivo's Rights offering and listing of the Cautivo shares and the Rights on the Canadian Securities Exchange. On August 10, 2017, Cautivo’s shares on the rights demonstrating on the CSE under the trading symbol CAI and CAI.RT respectively. On July 26, 2017, the company disposed to Plexmar Resources, Cautivo Mining Inc. the shareholders of the company as a return of capital, a total of 3,253,588 shares issued as well as rights up to 11,904,751 shares at $0.84 per share. As we reported this transaction, the company realized a non-cash loss of discretion of the net asset to Plexmar of 4,412,000 and distributed on a non-cash dividend of 2,700,000 shareholders related to the fair value of the assets. Lastly, the company announced an aftermarket issuance, on October 10, 2017, - Lastly, the Company announced an at-the-market issuance program on October 10, the company announced that it will enter into an open-market sale agreement with Scotia Capital USA Inc., Jefferies LLC, H.C. Wainwright & Co., LLC, and Noble Capital Markets. The Company has filed a prospectus supplement, dated October 20, to the base prospectus whereby the company may issue up to US$55.0 million of common shares but not more than 22,500 common shares in an at-the-market distribution. The Company intends to use the net proceeds of the offering for general corporate purposes, including capital requirements and debt repayment. In accordance with our amended acquisition credit facility with Banco de Credito del Peru, at least 50% of the proceeds which were received from the offering must be allocated to the mandatory prepayment of the amounts owing under the BCP – to BCP under such facility. Operator, with that, we are going to open up the call to questions. We were having some technical issues with our lines in Peru. So, if you can open up the lines to questions, while we get the people from Peru connected back on the line again please.

[Operator:]

[Operator Instructions] And your first question comes from the line of Lee Cooperman from Omega Advisors. Lee, your line is open.

[Lee Cooperman:]

Very much. I apologize, if you’ve covered some of these things, but the fidelity was so poor. I had difficulty in hearing the first 90 odd percent of the call. And maybe some questions you don’t want to answer, but let me just give you all in one shot. EBITDA, you have an expectation for EBITDA for the year ending 2017, given the fact that we are 11.5 months into the year. Second, your CapEx plans for 2018, third, have you ever undertaken an appraisal of your asset holdings and you have a view of the appraised value of the shares. Fourth, do you have any insight into the intentions of your larger shareholder. I guess, 50% of the equity is owned by a private equity fund which if I understand correctly has an obligation to distribute or make some decisions in October 2018. Do you have any sense of what they are thinking? And last, can you kind of review what your intentions are on your open-market agreement, your sales agreements, in other words, is there a price objective you have in mind and that you want to sell the shares at, et cetera or is there any price which – below which you would not sell the shares? Any help, you could be will be appreciated. Thank you very much.

[Christina Papadopoulos:]

Hi, Lee thank you very much.

[Igor Gonzales:]

We are back on the call. We had – sorry, yes, we are back in the call, we were kind of – I think on the last part of Ed’s presentation, so, can you give us an update on what happened, like we talked up or you already making questions?

[Mike McAllister:]

There is a lot of confusion here, Mike, maybe. So, gentlemen, I apologize you were cut off. I finished reading the section for you Ed on the use of proceeds from the BCP spin out and so that the script is completed. We have now opened the call up to questions and Mr. Cooperman has asked a few questions, specifically looking for our expectations for CapEx for 2018, whether we have – actually had an appraisal of the assets in Peru and then he wants some insight into the intentions of….

[Lee Cooperman:]

Hold, hold, can I rephrase the question, because you are not stating them correctly. I said, question number one, do we have an expectation, just let me ask the questions and you can answer them. And I would recommend that you get a better fidelity or a better outcome in the next conference call which you are hurting yourself in the way we’re being doing it now. First question is, do we have an expectation of EBITDA for the current year ending in about six weeks? We are so far into the year. Second, do you have a CapEx forecast for 2018, third, not Peru, but the entire company, have we undertaken an appraisal of our various asset holdings that we could share with the shareholders a view of the appraised value of our asset holdings? And then, finally, could you discuss what the intentions are with this shelf or open market sale agreement? Is there a minimum price you are looking for to make sales? Or would you make sales at the current market? Thank you very much for any help it could be.

[Ed Guimaraes:]

Thanks, Lee and I do apologize for the corrections of myself and Igor and Gord are situated in our office. The week and we were viewing budgets and I do apologize. It was a bad – as well on our end. In terms of your first question, the expectations for 2017 in terms of EBITDA, we have gone on record and say that we would beat our previous high watermarks which we expect in 2000 itself a $72 million. I expect EBITDA to come in for this year approximately somewhere around $80 million to $85 million. In terms of expectations for CapEx, for next year, we are in the process of giving that as we speak. That’s what we speak here over in Lima with all of our operating menus. In terms of appraisal, no an appraisal has not been made with respect to the asset, the operating asset. And that is something that is something that – as we get more information on the intentions of the fund and its shares, I think that’s something that may come, but I have not heard of anything as of yet. In terms of the intentions with respect to the shelf and our aftermarket financing, no, we don’t expect to issue share at these price levels. We will probably, I don’t want to really go off record and say what price we would just be going to do, as because it all depends on the number of shares. It depends on the - who the potential investor might be. There is a lot of qualitative factors that would link to that. But I would say that, we are probably – to give a range, we’d probably be closer to the $3 U.S. mark over the Canadian $3.75 mark before we would contemplate any share issuances.

[Lee Cooperman:]

Thank you.

[Ed Guimaraes:]

I hope I answered your questions. Lee.

[Lee Cooperman:]

You did, you did. It’s fine. And I assume that, basically, that you anticipate having improved EBITDA in 2018 versus 2017? Forget the exact number, but that directionally you would expect to have.

[Ed Guimaraes:]

Yes, directionally, because, metal prices are holding currently at I would say, much – in terms of what we are forecasting on what the market is forecasting slow, we should see continued strong metal prices going into 2018 and with higher grades pursuing better throughputs at Bolivar and Cusi, the turnaround was standard, the Lima, where we will be mining some probably quite – getting of Q2, 2018, we will be up to 650 tonnes per day in that area as well as recoveries, so the recoveries have improved significantly north of 8% for Bolivar. So all this should bode well for increased EBITDA in 2018 over 2017.

[Lee Cooperman:]

Thank you again.

[Operator:]

And your next question comes from the line of Ron LeGrow from Athena Funds. Ron, your line is open.

[Ron LeGrow:]

Hi, Igor. What is kind of good news? I certainly hope that you guys will be more proactive in getting in front of the investment community.

[Igor Gonzales:]

Sorry, we’ll hear your question very well. Can you repeat please?

[Ron LeGrow:]

No, I just wanted to make a comment that, in light of the good news that the company has produced for the quarter, I certainly hope that you guys are going to be more proactive in terms of getting out to the investment community.

[Igor Gonzales:]

Well, to respond to your question, we have been very proactive and we will reveal in the latest coming two months with a number of very important press releases in various fronts. We continually update the market on our exploration results, results of our Brownfield explorations. We have issued a report for Bolivar, Cusi and Yauricocha. And after the deliveries of these press releases, we are also updating the market with our operational improvements in Mexico and then, recently we have updated the markets on the reserve update of the reserve calculation for the Yauricocha. We have two pending technical reports, one for Cusi and one for Bolivar that will be coming due in this quarter. And then, we have also been marketing very aggressively the nickel, in different mineral conferences in North America and Europe. So, that, I guess, that’s in simplistic of what we’ve been doing in terms of communicating.

[Operator:]

And your next question comes from the line of Ian Grundy from Scotia Bank. Ian, your line is open.

[Ian Grundy:]

Hi, good morning. I just had a question on the Yauricocha 43-101 that you filed this weekend. I know in the past, the reserve plan sometimes differs from the actual mine plan because, you are mining inferred material it doesn’t go into the reserve plan or exploration success is meant that you put different material through the mill. So, can you just speak to, like, whether we should be taking kind of in the next couple of years as the base case as of today or whether that was as of July 31, and where you see the Yauricocha Mine plan next year?

[Gordon Babcock:]

I think, the focus for Yauricocha is that, focus on our improvements to the mine production plan like – Yauricocha shelf or tunnel. All of the focus has – was indicated to you when you came to site visit, our focus is that, through our products stem through this operation, you can see this. One other things that we do have opportunity on that as we go turn the year and we get our detail infill program, that also gives us the opportunity to improve our head grades on to the plan. We’ve made significant improvements in the circuit in the plans itself. So we are gearing up this whole operation for the future with improvements in productivity. I think that’s our main focus. Remember that, the whole – technical reports are based back to our reserve and under reserve bases, we have huge improvements in volume that was not the case to using them. I think that’s our focus for Yauricocha.

[Igor Gonzales:]

And I would like to comment on the answer from Gordon, I think what all these findings are doing for Yauricocha is they are improving the flexibility of their availability of different types of ores and pits for our operation. And just to mention a feel for next year, we are going to be having ore for except from Butz, from Esperanza, from Antacaca, from Elissa, from Mascota, Karlita, and we have more and more places. So, that alone represents a problem for planning, but it’s also an opportunity for us. It gives us more flexibility to source it over in different locations depending on metal or ore price.

[Ian Grundy:]

Yes, okay. That’s very helpful. And then, switching gears to Cusi, the guidance on start-up from the Santa de Rosa de Lima zone is very helpful and certainly you’ve been helpful putting out the recent exploration results and the average grade of the silver equivalent grade of 372 grams per tonne, but, what should we be thinking about in terms of silver head grades once you start ramping up? Are you going to get to higher grades first or is it going to be near the average of that? Do you have a better sense now that you’ve done some more technical work?

[Gordon Babcock:]

I think that’s going to take us a little bit more time to do some more technical work and lay out a money plan and that’s part of the whole process that we are into right now.

[Ian Grundy:]

Yes, okay. So that will be with the…

[Gordon Babcock:]

The opportunity, let’s see.

[Operator:]

And your next question comes from the line of Mark Ghobrial from BRJ Ventures. Mark, your line is open.

[Mark Ghobrial:]

Hi, thanks for taking the time guys. Just couple questions on the Bolivar Mine. Are copper grades expected to decrease below the percents reported in the third quarter? Further also, now that all the equipment are in place or order, how long will it take to produce the 3000 tonne per day target that you guys have referenced and can Bolivar produce at a sustainable rate above that level? If so, how much?

[Igor Gonzales:]

The cost per gram, right now we are starting to see improvements in copper grade. Our chart rates and industry do well. We work on our recovery plan and the mine production plan continuing with those objectives. As of now, that the equipment that’s now in our hands, we are slowly moving forward just to make that in the right direction. Now, and the last question, can you repeat that again?

[Mark Ghobrial:]

Just regarding the sustainable production rate for Bolivar, if you can get over 3000 tonnes per day and how high it can go?

[Igor Gonzales:]

Well, the objective is to slowly increase that activity in Bolivar depending on our targeted 3000 and are moving above that. Operational tensions will have to make specifically on the milling side, that will be discussed during budget outputs.

[Gordon Babcock:]

Yes, just to complement what President had just mentioned, we are actively thinking for sample grades as the mills improve the grinding of the ore. We have already made some improvement in the Thomson and – improve classification of the ore because we know that with a better grind, there will be better liberation for improved recovery. So those things are on boarding together with the mine upgrade.

[Mark Ghobrial:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions] And the next question comes from Jim Young from West Family Investments. Jim, your line is open.

[Jim Young:]

Yes, hi and I apologize if some of this is repetitive. But it was very difficult to hear on the call. On Page 19 of the MD&A, you have the quarterly mine-by-mine levels and it’s been highly volatile over the last couple of years. My question is, I guess, we’ve seen some steady improvements at Yauricocha, but do you think forward into the fourth quarter, the first quarter of next year and the second quarter and out into rest of 2018, over what kind of timeframe could we expect to see all three mines kind of producing at their potential? Can you give again, with Yauricocha, Bolivar and Cusi all starting to come together, if that’s possible? Thank you.

[Igor Gonzales:]

Well, what I am expecting to see in 2018, there must be some improvements that coming through the Bolivar. We are all targeting more productivity out of the Bolivar mine than in the future. We want to see steady state – we want to see tonnages are constant working to the plan and getting our recoveries well will be our objective. And in the case of Cusi, when we go to Cusi, there is again a recent opportunity in the features of Cusi that that will be pretty dramatic. It’s not just so much in the middle of 600 and we have to look at this in the future as an increase in volume as we go through the process moving forward. Cusi has lot of opportunities. We want to focus in initial 2018 to mineral 50 tonnes target in Cusi and in the case of Bolivar, bump up productivity to get up to current or better than much and that will give the exactly. And on the Yauricocha, we’ll have its increases as well based on volume that increases on the operation and that’s where we are targeting.

[Jim Young:]

Okay, and then, secondly, regarding the upcoming technical report for Cusi, will the resources that will be delineated in this report, will that include just the one kilometer length or would that also include the step out areas out to 1.7 kilometers.

[Igor Gonzales:]

It’s kind of include the one to another section. Basically, it’s for the time being. There is not enough drill density in the step out drilling program. The well has been incorporated into the measure and indicated category. So, well, we include the area which was drilled that included the 30,000 meters of drilling, up to July of this year.

[Jim Young:]

Okay. So – and I guess that, and that report should be coming up no later than the year end 2017 as I understand. So – but, secondly, regarding the whole, Santa de Rosa de Lima area then, could you share with us like, how much current drilling in either exploration, infill drilling are you doing in that 1.7 kilometer step out area? And then also, in addition to the 1.7 kilometers, how aggressively are you currently pursuing to the extent that beyond the 1.7 kilometer range at this time?

[Igor Gonzales:]

We need to have fund and systematically working on improving the drill density. Our target is that, we sense a lot of progress on the initial force. So our focus right now is taking the first step resource maintenance and slowly increasing that through for breaking out for – maybe into the next, next quarter of 2018. Yes, the 2018 budget will improve the infill drilling in the Santa de Rosa de Lima. In other words, we will include in terms of infill drilling in the extensions of areas that we have orebody and the technical report. So we will complete and mineralize that area in both directions.

[Jim Young:]

Okay. Then my last question is regarding to Yauricocha, at this – in this mine, you completed the Titan 24 survey where you identified several interesting anomalies and I am just kind of curious as to anything that you can share with us about the progress in exploring and further defining the potential opportunities that these anomalies may provide?

[Gordon Babcock:]

We are certainly drilling on a few of the targeted anomalies as we speak and some of these are fairly long. So, it’s going to take some time to complete and then we will have an overview or report on the context that we have to share with all of our jobs we have to flow. So we are in the process of targeting in that area and setting up drill programs next year with absolute anomalies.

[Igor Gonzales:]

One of the delays for drilling the anomalies in the case of Yauricocha is that we hope that needs to be drilled from the surface. It need us special permit from the Ministry of Copper in Peru and that’s currently takes anywhere between three to four months. We have already applied for that permit probably a month ago or so when we learn about the anomaly. And we decided to start the drilling of three holes that we were able to drill from our mine operation area inside the mine and close out to drill that are being drilled right now. But the ones that needs to be drilled from surface need to worry for the permit from the Ministry of Copper.

[Operator:]

And there are no more questions in the queue. We will turn the call back over to the presenters.

[Christina Papadopoulos:]

Thank you, operator. That concludes today's call. On behalf of the management team, I’d like to thank all participants for joining us today. A replay of the webcast and all materials can be found on our website at sierrametals.com. If there are any further questions or concerns, you may reach out to us at any time. Our contact information can be found in today's presentation, as well as the company’s website. Thank you, Operator, I guess, that concludes our call.

[Operator:]

This does conclude the call. You may now disconnect.